Portfolio Monitoring

Portfolio Monitoring is the second element in share investment after stock selection. You may refer my previous article about stock selection as the link below:

http://rhinvest.blogspot.com/2015/08/stock-selection.html

Of course, there are many types of methods in investing. Everyone will have their own method. For example, some will follow Warren Buffet’s value investing method. After screened out a potential stock, they will buy and leave it there for very long term.

For me, in order to invest successfully in stock market, stock selection accounted for 40% while portfolio monitoring accounted for another 60%. Portfolio monitoring means that we need to monitor and follow up with our portfolio from time to time. One of the reasons why 80% of the investors make losses in stock market is because they do not set a stop loss for their owned stocks. When the stock price dropped below our buy price, one will leave it there and wait for the price to rebound back at least to breakeven price. They will continue hold and wait. However, normally the stock price will continue drop to another level and each time they will still think the same way, wait for rebound.

Set a cut loss is a must in order to protect your capital or profit. Even though one can select a good stock, doesn’t mean that he/she can earn good profit from it. Every good stocks will have their up and down. No good stocks will forever in an uptrend. That’s the reason why portfolio monitoring is important! Time is money. The longer you hold a losing position, the more value you will lose. Most of the people understand this theory well, but when it comes to cut loss, it is never easy. It needs a lot of practice, discipline and experience to execute it. People normally refuse to accept the facts that they are losing. They refuse to lose even just 0.5 cent. They will wait and hold until at least breakeven price. So do I!

In other scenario, when someone is in a profit position, they will try to maximize its profit return. So, when the price dropped, they refuse to take profit. They wait for it to go up again. However, when the stock’s uptrend had ended, it will never go up to the price that they are aiming for again in a short time. Eventually, some will even fall below the buy in price and it turns from profit to loss! For example, you bought a stock by RM1.00 and it went up to RM1.20 in 2 months time. However, when the economy turned down, it went down from RM1.20 to RM1.00 again in 2 weeks time. That’s mean you had lose 20% paper gain and the worst part was you had wasted your precious two months time.

The above is Signature International Berhad (7246) chart. This is a real experience. I bought Sign with RM2.63 after its ex-div date on June. Market during that time was still considered as stable. I patiently waited for about 2 months for its price to go up till RM3.20, paper gain of around 20%. Unfortunately, the market started to downturn after that. It had totally no related to its fundamental.  During that time, I set a stop loss at RM3.10 but it closed at RM3.07 which I was not willing to sell off. I believed it will rebound and come back again soon. But, the fact is it never goes back again. The price closed at RM2.49 as at yesterday (12 August) and I still holding it right now.

 I review back about this trade. The correct method should be tightening the stop loss everytime it goes up to a new level/region. The first stop loss should set at RM2.82 when it is moving within the first region. Secondly is at RM3.00 and third RM3.10. It must be very clear that once it breach the stop loss, sell it without hesitation. In addition, the chart had two reversal signals as well. The RSI had shown overbought and it is turning direction. Secondly is the appearance of shooting star. It is obviously a sell signal, but human are naturally greedy.  

Anyway, it is a good lesson and experience in my investment journey. Monitoring is the most important part. It is not hard to pick and buy a good stock, but it is never easy to sell off with an ideal price. Keep learning!

Just for sharing.